Enhanced Disclosure Task Force
On October 29, 2012, the Enhanced Disclosure Task Force (EDTF) of the Financial Stability Board published its first report, Enhancing the Risk Disclosures of Banks. We support the recommendations issued by the EDTF for the provision of high-quality, transparent risk disclosures.
Disclosures related to the EDTF recommendations are detailed below.
Present all risk-related information in the Annual Report, Supplementary Financial Information and Supplementary Regulatory Capital Disclosure, and provide an index for easy navigation.
Annual Report: Risk-related information is presented in the Enterprise-Wide Risk Management section on pages 79 to 112.
An index for the MD&A is provided on page 26. An index for the notes to the financial statements is provided on page 144.
Supplementary Financial Information: An index is provided in our Supplementary Financial Information.
Define the bank’s risk terminology and risk measures and present key parameters used.
Annual Report: Specific risk definitions and key parameters underpinning BMO’s risk reporting are provided on pages 88 to 112.
A glossary of financial terms (including risk terminology) can be found on pages 206 to 207.
Discuss top and emerging risks for the bank.
Annual Report: BMO’s top and emerging risks are discussed on pages 80 to 83.
Outline plans to meet new key regulatory ratios once the applicable rules are finalized.
Annual Report: We outline BMO’s plans to meet new regulatory ratios on pages 70 to 73 and 105.
Summarize the bank’s risk management organization, processes, and key functions.
Annual Report: BMO’s risk management organization, processes and key functions are summarized on pages 83 to 87.
Describe the bank’s risk culture.
Annual Report: BMO’s risk culture is described on page 84.
Describe key risks that arise from the bank’s business model and activities.
Annual Report: A diagram of BMO’s risk exposure by operating segment is provided on page 75.
Describe the use of stress testing within the bank’s risk governance and capital frameworks.
Annual Report: BMO’s stress testing process is described on page 87.
Capital Adequacy and Risk-Weighted Assets (RWA)
Provide minimum Pillar 1 capital requirements.
Annual Report: Pillar 1 capital requirements are described on pages 70 to 73.
Supplementary Financial Information: Regulatory capital is disclosed on page 35.
Summarize information contained in the composition of capital templates adopted by the Basel Committee.
Annual Report: An abridged version of the regulatory capital template is provided on page 73.
Supplementary Financial Information: Pillar 3 disclosure is provided on pages 35 to 37 and 39. A Main Features template can be found on BMO’s website at www.bmo.com under Investor Relations and Regulatory Filings.
Present a flow statement of movements in regulatory capital, including changes in Common Equity Tier 1, Additional Tier 1, and Tier 2 capital.
Supplementary Financial Information: Regulatory capital flow statement is provided on page 40.
Discuss capital planning within a more general discussion of management’s strategic planning.
Annual Report: BMO’s capital planning process is discussed under Capital Management Framework on page 70.
Provide granular information to explain how RWA relate to business activities.
Annual Report: A diagram of BMO’s risk exposure, including RWA by operating group, is provided on page 75.
Present a table showing the capital requirements for each method used for calculating RWA.
Annual Report: Regulatory capital requirement, as a percentage of RWA, is outlined on page 71.
Information about significant models used to determine RWA is provided on pages 89 to 90.
Supplementary Financial Information: A table showing RWA by model approach and by risk type is provided on page 39.
Tabulate credit risk in the banking book for Basel asset classes.
Supplementary Financial Information: Wholesale and retail credit exposures by internal rating grades are provided on page 47.
Present a flow statement that reconciles movements in RWA by credit risk and market risk.
Supplementary Financial Information: RWA flow statements are provided on page 41, with a reconciliation on page 38.
Describe the bank’s Basel validation and back-testing process.
Annual Report: BMO’s Basel validation and back-testing process for credit and market risk is described on pages 108 to 109.
Supplementary Financial Information: A table showing Exposure at Default and RWA by model approach and asset class is provided on page 39. A table showing estimated and actual loss parameters is provided on page 49.
Describe how the bank manages its potential liquidity needs and the liquidity reserve held to meet those needs.
Annual Report: BMO’s potential liquidity needs and the liquidity reserve held to meet those needs are described on pages 100 to 101.
Summarize encumbered and unencumbered assets in a table by balance sheet category.
Annual Report: An Asset Encumbrance table is provided on page 102.
Additional collateral requirements in the event of downgrades by rating agencies are disclosed in Note 8 on page 164 of the financial statements.
Supplementary Financial Information: The Asset Encumbrance table by currency is provided on page 34.
Tabulate consolidated total assets, liabilities and off-balance sheet commitments by remaining contractual maturity.
Annual Report: A Contractual Maturity table is presented in Note 29 on pages 202 to 205 of the financial statements.
Discuss the bank’s sources of funding and describe the bank’s funding strategy.
Annual Report: BMO’s sources of funding and funding strategy are described on pages 103 to 104.
A table showing the composition and maturity of wholesale funding is provided on page 104.
Provide a breakdown of balance sheet positions into trading and non-trading market risk measures.
Annual Report: A table linking balance sheet items to market risk measures is provided on page 98.
Provide qualitative and quantitative breakdowns of significant trading and non-trading market risk measures.
Annual Report: Trading market risk exposures are described and quantified on pages 95 to 97.
Structural (non-trading) market risk exposures are described and quantified on pages 98 to 99.
Describe significant market risk measurement model validation procedures and back-testing and how these are used to enhance the parameters of the model.
Annual Report: Market risk measurement model validation procedures and back-testing for trading market risk and structural (non-trading) market risk are described on pages 108 to 109.
Describe the primary risk management techniques employed by the bank to measure and assess the risk of loss beyond reported risk measures.
Annual Report: The use of stress testing, scenario analysis and stressed VaR for market risk management is described on pages 95 to 97.
Provide information about the bank’s credit risk profile.
Annual Report: Information about BMO’s credit risk profile is provided on pages 90 to 92 and in Notes 4 and 5 on pages 153 to 158 of the financial statements.
Supplementary Financial Information: Tables detailing credit risk information are provided on pages 20 to 30 and 43 to 50.
Describe the bank’s policies related to impaired loans and renegotiated loans.
Annual Report: Impaired and renegotiated loan policies are described in Note 4 on pages 153 and 155, respectively, of the financial statements.
Provide reconciliations of impaired loans and the allowance for credit losses.
Annual Report: Continuity schedules for gross impaired loans and allowance for credit losses are provided on pages 91 to 92 and in Note 4 on pages 154 to 155 of the financial statements.
Provide a quantitative and qualitative analysis of the bank’s counterparty credit risk that arises from its derivative transactions.
Annual Report: Quantitative disclosures on collateralization agreements for over-the-counter (OTC) derivatives are provided on page 94 and qualitative disclosures are provided on pages 88 to 89.
Supplementary Financial Information: Quantitative disclosures for OTC derivatives are provided on page 33.
Provide a discussion of credit risk mitigation.
Annual Report: A discussion of BMO’s credit and counterparty risk management is provided on pages 88 to 89. Collateral management discussions are provided on pages 88 to 89 and in Note 8 on pages 164 and 166 and in Note 25 on page 196 of the financial statements.
Supplementary Financial Information: The exposures covered by credit risk mitigation table is provided on page 43.
Describe other risks and discuss how each is identified, governed, measured and managed.
Annual Report: A diagram illustrating the risk governance process that supports BMO’s risk culture is provided on page 83.
Other risks are discussed on pages 106 to 112.
Discuss publicly known risk events related to other risks, where material or potentially material loss events have occurred.
Annual Report: Other risks are discussed on pages 106 to 112.